Fletcher seeks to ease tough vote

By PAM GRAHAM

Fletcher Challenge Forests is trying to get a lower shareholder approval threshold for the sale of its forest estate by effectively arguing that it is not the vendor.

Fletcher Forests says its forests are owned by subsidiary companies and therefore the sale is not a major transaction requiring the approval of 75 per cent of its shareholders.

It wants a 50 per cent vote.

Shareholders Association chairman Bruce Sheppard said that if Fletcher's argument was accepted any company could put assets into a subsidiary and avoid mechanisms protecting minority shareholders.

The matter goes before the High Court on December 5. Sheppard said the company was trying to clarify matters in seeking the judgment.

Any vote on a return of proceeds from the forest sale would be a major transaction, company secretary Paul Gillard said.

Fletchers is selling its 106,000ha estate to focus on processing businesses after last year failing to buy the 189,000ha Central North Island Forest Partnership estate with Citic, the investment arm of the Chinese Government.

The CNIFP deal failed to win the approval of 75 per cent of Fletcher Forests' shareholders.

Major transactions require a 75 per cent vote under the Companies Act, which also allows shareholders who voted against a major transaction to be bought out.

"If the rules are able to be circumvented through a daisy chain of subsidiaries, then we don't have minority protection any more," Sheppard said.

The central issue is expected to be whether Section 129 of the Act applies to an individual legal entity, such as a subsidiary company, or the broader commercial enterprise.

Sheppard said a larger issue was what were the intentions of 19.9 per cent shareholder Rubicon.

Though Sheppard argued for a 75 per cent vote, he said his greatest fear was that someone could "do a Mainfreight" and offer a premium for Rubicon's 19.9 per cent stake in Fletcher Forests to control votes on major transactions.

Fletcher Forests' annual meeting is on December 19 and a vote on a forest sale will be made at a separate meeting, expected in January.

Fletcher will take flak from shareholders at the meetings for agreeing to a break fee arrangement with the Campbell Group under which the US-based timber management company receives $17 million if it does not end up buying the forests. Half of that amount has been paid to Campbell to allow Fletcher to negotiate with Kiwi Forests, which has a US partner Prudential Timber Investments.

Fletcher Forests will adopt a new name after the sale.

What the law says

* NZX listing rule 9.1.1 Company must not enter a transaction which "would change the essential nature of the business" or where the value of the deal is more than half the market value of the company without a majority vote of shareholders - ie, more than 50 per cent.

* Company requires a "special resolution" of shareholders - ie, more than 75 per cent - if section 129 of Companies Act 1993 applies.

* Companies Act 1993, section 129 A "major transaction" must be "approved by special resolution".

* A "major transaction" involves "assets of the company the value of which is more than half the value of the company's assets before the disposition" .